Friday, December 21, 2018

Why the Fed’s Obsession With Inflation?

Popular Economics Weekly

The Federal Reserve’s December FOMC statement, said, after increasing their overnight rate another one-quarter percent: “Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee judges that some further gradual increases in the target range for the federal funds rate will be consistent with sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2 percent objective over the medium term.”

Why is there still worry over inflation, 40 years after the 1970’s wage-price spiral that caused so much pain, and initiated the Fed’s obsession with keeping a low inflation target in the first place?

One has only to look at the decline of real wages and salaries since the 1980s to realize the Fed puts most of the inflation blame on real wages, the incomes of the working and middle classes. They use the outmoded formula that labor costs make up two-thirds of product costs; ergo, every time wages begin to rise the Fed must raise rates to keep wages from rising higher to prevent more inflation.

But the history of the Consumer Price Index gauge of retail inflation from 1929 portrayed in the above graph proves that inflation has been almost non-existent above 2 percent, with occasional bumps to 4 percent during boom times; except for the sharp spike in 1980 due to the wage-price spiral precipitated by the jump in oil prices of the 1970’s Arab oil embargos.

Then what are the “strong labor conditions” the Fed seems to be worried about that merit the quarter-point raise this week? The unemployment rate is 3.7 percent, but wages are barely rising above today’s 2 percent inflation rate these days, even in a fully-employed economy. And the Fed predicts 2 percent inflation through 2021 in its just-released predictions with full employment also continuing through 2021.
They must not really believe wage costs determine inflation, if they predict low inflation will persist with full employment in the 3 percent range, per their above matrix. That can’t happen. The “strong labor market conditions” haven’t pushed up production costs, with so-called unit-labor costs rising just 0.9 percent Q-to-Q.

So what is the Fed to do? It should not tie their inflation predictions to wage increases, for starters. Inflation is caused by much more than rising wages. In today’s low inflation environment where robots are replacing many workers, the costs of production are tied more to the costs of robots, rather than labor personnel.

Tesla’s new Fremont, CA fully-automated Model 3 electric vehicle factory that was set up in just 3 weeks is evidence robots now control the cost and pace of production more than the personnel.

Harlan Green © 2018

 Follow Harlan Green on Twitter:

Tuesday, December 18, 2018

What Happened to Inflation?

Popular Economics Weekly

It looks like inflation will no longer be a problem holding back consumer spending for the forseeable future; or in any other economy in the developed world as well.

It’s not a problem because economies today can quickly ramp up production and sell into multiple international markets due to the new technologies and labor-saving devices that keep popping up. It’s why the Consumer Price Index (CPI) is increasing just 2.2 percent annually, when energy and food price fluctuations are taken out.

This is both good and bad for a number of reasons. Firstly, it means interest rates won’t rise very fast, lowering borrowing costs for consumers and businesses, the boost to consumers.

The increased use of robotics in the service and manufacturing sectors is just one example that makes this possible. Labor productivity has surged. The U.S. Bureau of Labor Statistics just reported nonfarm business sector labor productivity increased 2.3 percent during the third quarter of 2018, I reported last week, as output increased 4.1 percent and hours worked increased just 1.8 percent. Declining unit labor costs over the past 12 months are the reason productivity has increased at the same time as output.

That means labor costs aren’t rising either, which boosts labor productivity, and higher productivity boosts everyone’s standard of living. The average labor productivity rate of 2 percent since World War II has doubled the standard of living every 25 years for workers.

It means personal incomes are rising faster than inflation, at the moment, which boosts consumer buying power. But the prolonged low inflation since the end of the Great Recession also means aggregate demand (the overall demand by consumers, investors and government for ‘things’) has not been strong enough to boost GDP grown above 2 percent.

But we could also be returning to a period of disinflation—falling inflation—or outright deflation that lasted for two decades in Japan, and that Federal Reserve officials worried about in the past—hence Ben Bernanke’s ‘Helicopter Ben’ moniker when he said in early 2000s somewhat facetiously that dropping money from helicopters is one way to combat deflation.

Should we worry about continued low inflation that worried the Fed for so long and resulted in the QE security purchases that have kept interest rate at rock bottom for so long? Yes, because wages and salaries are not rising as fast as they should to boost aggregate demand and therefore maintain economic growth in the longer term 3 percent average range. This due to a number of reasons, including labor-unfriendly administrations that took away labor protections.

And that’s why there isn’t the money for badly needed infrastructure, healthcare, education, and just about everything in the public sector that only governments can do. Slow growth also means many lack a decent living wage, or standard of living.

Harlan Green © 2018

 Follow Harlan Green on Twitter:

Friday, December 14, 2018

Who Is Our Loneliest Generation?

Answering the Kennedys Call

Much of my forthcoming book, Answering the Kennedys Call; Solutions in Public Service and Community-Building for the Future documents how we can rebuild the broken communities and sense of isolation that is afflicting so many Americans today.

One facet of broken communities is the growing sense of loneliness and unhappiness in newer generations, due in part to the dominance of social networking with smartphones, Facebook, Instagram, and Snapchat.

Child Psychologist Jean Twenge says the iphone generation, those born between 1995 and 2012, are now the loneliest generation in a 2017 Atlantic Magazine article, and book, iGen: Why Today’s Super-Connected Kids Are Growing Up Less Rebellious, More Tolerant, Less Happy—and Completely Unprepared for Adulthood—and What That Means for the Rest of Us..
“Psychologically, they are more vulnerable than Millennials were: Rates of teen depression and suicide have skyrocketed since 2011. It’s not an exaggeration to describe iGen as being on the brink of the worst mental-health crisis in decades. Much of this deterioration can be traced to their phones.”
Social Scientists first saw an increase in Americans’ feelings of loneliness in the 1970s—at the same time as the advent of the World Wide Web (the Internet), and the personal computer first introduced by Apple in 1976. But then it was the millennials who were the most affected, and unhappy—the children of the baby boomers.

The University of Chicago’s annual General Social Survey has also found that the number of Americans with no close friends has tripled since 1985. “Zero” is the most common number of confidants, reported by almost a quarter of those surveyed. Likewise, the average number of people Americans feel they can talk to about "important matters" has fallen from three to two.

And the results of rising loneliness have been mixed, as the title of Twenge’s book highlights—they are somewhat slower to mature and acquire social skills to successfully negotiate adult life. There is greater social isolation as teens focus on their phones—even sleeping with them under the pillow—rather than acknowledging their physical surroundings. This especially affects their physical health; they spend less hours sleeping (averaging 7 hours vs. 9 hours needed by most teens).
“It’s not only a matter of fewer kids partying; fewer kids are spending time simply hanging out,” says Twenge. “That’s something most teens used to do: nerds and jocks, poor kids and rich kids, C students and A students. The roller rink, the basketball court, the town pool, the local necking spot—they’ve all been replaced by virtual spaces accessed through apps and the web.“
Rising levels of depression and suicides are the most alarming results from such social isolation, isolation that runs counter to our evolutionary development—when social skills were necessary for survival that enabled them to recognize friend from foe.

Girls have also borne the brunt of the rise in depressive symptoms among today’s teens. Boys’ depressive symptoms increased by 21 percent from 2012 to 2015, while girls’ increased by 50 percent—more than twice as much. The rise in suicide, too, is more pronounced among girls. Although the rate increased for both sexes, three times as many 12-to-14-year-old girls killed themselves in 2015 as in 2007, compared with twice as many boys. The suicide rate is still higher for boys, in part because they use more-lethal methods, but girls are beginning to close the gap.

The Kaiser Family Foundation in conjunction with The Economist has been measuring loneliness among U.S., U.K., and Japanese citizens. More than a fifth of adults in the United States (22 percent) and the United Kingdom (23 percent) as well as one in ten adults (nine percent) in Japan say they often or always feel lonely, feel that they lack companionship, feel left out, or feel isolated from others, and many of them say their loneliness has had a negative impact on various aspects of their life.
“People experiencing loneliness disproportionately report lower incomes and having a debilitating health condition or mental health conditions,” said the @KaiserFamFound/@Economist survey. “About six in ten say there is a specific cause of their loneliness, and, compared to those who are not lonely, they more often report being dissatisfied with their personal financial situation. They are also more likely to report experiencing negative life events in the past two years, such as a negative change in financial status or a serious illness or injury. Three in ten say their loneliness has led them to think about harming themselves.”
It is part of the larger breakdown of American communities studied by Robert Putnam in his ground-breaking book, Bowling Alone, the Collapse and Revival of American Community. Putnam warns that our stock of social capital – the very fabric of our connections with each other - has plummeted, impoverishing our lives and communities.

This means communities must be strengthened, with more focus put on bringing neighborhoods together. One aid is with national social networks like Next Door that seeks to bring neighbors out of their homes, computers and iphones to connect and help each other with day-to-day concerns, like cleaning the streets, advertising lost and found items, or just knowing who are their neighbors.

Nextdoor’s virtual communities—that now cover more than 180,000 U.S. neighborhoods, including more than 90 percent of those in the 25 largest cities—are becoming representative of the country’s actual populations, say its San Francisco founders.

This is social networking at its best—building community again by humanizing the tech tools that have been dividing us.

Harlan Green © 2018

Follow Harlan Green on Twitter:

Tuesday, December 11, 2018

It’s the Third Largest Housing Boom Ever!

The Mortgage Corner

The 10-year Treasury bond yield has fallen back to 2.86 percent, which is usually recession territory. And the 30-year conforming fixed rate is 4.125 percent again with a 1-point origination fee. This is unheard of in a fully employed economy currently growing at 3 percent. Longer term rates should be rising at such a time, not falling, as I said last week.

Then are we approaching recession territory? Nobel laureate Robert Shiller, perhaps the most informed behavioral economist following the housing market, has just opined that we are in the third largest housing boom, ever. He won last year’s Nobel Prize in the Economic Sciences because he has taken the trouble to understand Americans’ financial behavior in the housing market.

Only two other housing booms—the housing bubble preceding the Great Recession and that in post WWII 1940’s—lasted longer. Existing-home prices have risen 53 percent since 2012, 40 percent after inflation is factored in, said Professor Shiller.
“Since February 2012, when the price declines associated with the last financial crisis ended, prices for existing homes in the United States have been rising steadily and enormously. According to the S&P/CoreLogic/Case-Shiller National Home Price Index (which I helped to create) as of September, the prices were 53 percent higher than they were at the bottom of the market in 2012.”
It’s possible we are at the top of this housing boom, which means at the top of this business cycle, as well, since the financial markets usually follow where housing goes. Housing prices and housing demand are forward-looking indicators, in other words, because home buyers are sensitive to inflation and interest rate trends.

Actually, Professor Shiller maintains most investors are fairly lazy in their research of investments, including housing purchases, which is why we have housing bubbles. That’s because investors tend to listen to good stories or word-of-mouth opinions by others they may or may not trust, rather than do their own research that might tell them the innate value of an investment in greater depth.

Such ‘irrational exuberance’ caused the last housing bubble because homebuyers believed the conventional story that home prices would never decline; and they hadn’t since World War Two.

That’s why homebuyers pushed up housing prices as much as 20 percent per year before the bubble burst in 2018, and housing prices declined for the first time since World War Two!

Dr.Shiller goes through all the possibilities for the current housing boom, including good economic times and the low jobless rate, but I vote for the simplest explanation— low interest rates.

It’s true 30-year conforming fixed mortgage rates were even lower last year at this time; as low as 3.50 percent; but the Fed is no longer buying mortgage-backed securities with their QE program.
They are now selling a portion of their $4 trillion portfolio. This should boost mortgages and other longer term fixed yields; but that isn’t happening as investors prefer to snap up more secure sovereign debt insured by the ‘faith and credit’ of the U.S. government.

Then do we have a housing bubble today? Not yet, as there are far too few homes being built at present. Builders are playing catchup to the lingering results of the Great Recession—too many low-paying jobs, too strict qualification standards by conforming lenders that sell to Fannie Mae and Freddie Mac (those entities still owned by the federal government), and cities that don’t want more homes built in their own backyard.

Harlan Green © 2018

Follow Harlan Green on Twitter:

Monday, December 10, 2018

Trade Wars Hurt US the Most!

Popular Economics Weekly

Is the trade war hurting U.S. jobs? Yes, says Mauldin Economics’ Patrick Watson, among others. Watson uses US automakers as an example. Ford and GM estimate that the 25 percent steel and 10 percent aluminum tariffs will add $1 billion to their production costs just next year. What happens when they sell more vehicles overseas with such rising production costs?
“For GM and other auto manufacturers, the customers are increasingly foreign. In this year’s third quarter, GM sold 835,934 cars in China and 694,638 in the U.S. It built many of those directly in China and has every reason to make more there, with tariffs or not,” said Watson
General Motors is poised to end production at five plants in the U.S. and Canada, kill off several passenger cars – including the Chevrolet Impala – and slash 15 percent of its salaried workforce in a sweeping cost-cutting plan designed to boost profits and adjust to America's changing tastes in vehicles.

Is globalization reversing itself? The recent rise in US Labor Productivity highlights the growing use of robots and other productivity-enhancing technologies American companies are investing in due, in part, to the 3.7 percent unemployment rate and resultant dearth of skilled workers. But there are other reasons

Robots level product costs, since they cost as much in China as in the US, which means China will produce more domestically to avoid rising tariffs, and so needs to import less from others, including the U.S.

 The U.S. Bureau of Labor Statistics just reported nonfarm business sector labor productivity increased 2.3 percent during the third quarter of 2018, as output increased 4.1 percent and hours worked increased 1.8 percent. Declining unit labor costs over the past 12 months are the reason productivity has increased at the same time as output. It is down to 0.9 percent for a 3 tenths decline from the first estimate. This reflects a 4 tenths downgrade in compensation to a growth rate of 3.1 percent.

This should also mean U.S. workers’ wages are rising, but the trade wars are in fact driving many of the better paying manufacturing jobs overseas. Robots are shortening the supply chain, in other words, which will only hasten the decline in the need for foreign products.

And we are already seeing the result of the tariff increases on Chinese goods; a surging trade deficit. The trade deficit rose in October to a 10-year high amid a record shortfall with China (due to drop in soybean purchases), keeping the U.S. on pace to record the largest annual gap in a decade, reports the U.S. Bureau of Economic Analysis.

The deficit edged up 1.7 percent to $55.5 billion from a revised $54.6 billion in September. That’s the biggest shortfall since October 2008, and ironically, it stems in part from tariffs imposed by President Trump in an effort to reduce the deficit.

We know part of the recent surge in imports reflects American companies stocking up on Chinese goods ahead of the holidays to get ahead of another increase in U.S. tariffs that were supposed to kick in on Jan. 1. But the U.S. tariff increase has been temporarily been postponed until March, per agreement with China at the recent G20 summit in Argentina.

Even the 90-day postponement is not helping the stock market, since nothing concrete was agreed on at the G20 meeting.  But it is pushing interest rates lower, to levels not seen since the Great Recession.  This will help consumer spending, but only if the Fed doesn’t raise their short-term rates further.

Harlan Green © 2018

Follow Harlan Green on Twitter:

Saturday, December 8, 2018

Weaker Employment Report Due to Higher Tariffs?

Financial FAQs

Total nonfarm payroll employment increased by 155,000 in November, and the unemployment rate remained unchanged at 3.7 percent, the U.S. Bureau of Labor Statistics reported today. Job gains occurred in health care, in manufacturing, and in transportation and warehousing.

The slightly weaker report showed little inflation that might keep the Fed from raising interest rates further in their December FOMC meeting. The Federal Reserve may not want to push rates higher because of the ongoing trade wars that threaten jobs and growth next year. This was brought out in the wild stock market gyrations of late. The DOW down plunged more than 1,000 points this week, erasing all its gains for the year, in part due to fears of upcoming layoffs due to the rising tariff costs.

Average hourly earnings increased just 0.2 percent, which was on the low side of expectations. The year-on-year rate for earnings held unchanged at 3.1 percent, again on the low side of expectations, which should keep the retail (CPI) inflation rate in the 2 percent range.

Another sign of moderation comes from average weekly hours which, at 34.4, are at the low end of expectations. Manufacturing hours and overtime are steady, which with the 27,000 jobs created show moderate results for the upcoming industrial production report.

Overall manufacturing activity as detailed in the November ISM Manufacturing Index was extremely strong with new orders, at 62.1, up 4.7 points, back over 60 in one of the longest runs in the long history of this report that it had held for a year-and-half. This may not continue if the steel and aluminum tariffs, however, are not eventually eased that are a large part of manufacturing costs.

The number of long-term unemployed (those jobless for 27 weeks or more) declined to 62.9 percent, and the employment-population by 120,000 to 1.3 million in November. These individuals accounted for 20.8 percent of the unemployed.

Both the labor force participation rate, at 62.9 percent, and the employment-population ratio, at 60.6 percent, were unchanged in November, said the BLS. The number of persons employed part time for economic reasons (sometimes referred to as involuntary part-time workers), at 4.8 million, changed little in November. These individuals, who would have preferred full-time employment, were working part time because their hours had been reduced or they were unable to find full-time jobs.

The report wasn’t strong enough to prevent expectations of further economic uncertainty amid the ongoing trade war with China, in particular, that has been given a 90-day reprieve at the G20 economic summit. The so-called reprieve did nothing for the existing tariffs in steel and aluminum initiated by Trump and agricultural tariffs enacted by China in response, which are boosting costs for both manufacturers and consumers.

Are we about to enter another recession, the sixth recession in two decades? Five have occurred since 1981, including the Great Recession. Two were during Ronald Reagan’s Presidency (1981, 1983), one under GHW Bush (1991), and two under GW Bush (2001, 2007). All have occurred under Republican administrations, in other words, administrations noted for cutting taxes, but not spending. Are we seeing a pattern?

The Trump administration is trying the opposite tack. It has cut taxes, but erected higher trade barriers. The results are already clear. General Motors just announced it is poised to end production at five plants in the U.S. and Canada, kill off several passenger cars – including the Chevrolet Impala – and slash 15 percent of its salaried workforce in a sweeping cost-cutting plan designed to boost profits and adjust to America's changing tastes in vehicles, as I mentioned last week.

The move — part of a sweeping cost-cutting plan unveiled Monday — comes as Americans are abandoning passenger cars in favor of crossovers, SUVs and pickups, said USA Today. But the underlying reason is that GM and Ford announced the 25 percent boost in steel tariffs, and 10 percent boost in aluminum tariffs enacted by the Trump administration will cost each an extra $1 billion in production costs next year.

Higher tariffs will not bring more jobs home—especially those higher-paying manufacturing jobs we were promised—if those tariffs aren’t eventually removed.

Harlan Green © 2018

Follow Harlan Green on Twitter:

Wednesday, December 5, 2018

Global Warming too Hot to Ignore

Answering the Kennedys Call to Action

The impacts of climate change are already being felt in communities across the country. More frequent and intense extreme weather and climate-related events, as well as changes in average climate conditions, are expected to continue to damage infrastructure, ecosystems, and social systems that provide essential benefits to communities, according to the just released U.S. Fourth National Climate Assessment..

Future climate change is expected to further disrupt many areas of life, exacerbating existing challenges to prosperity posed by aging and deteriorating infrastructure, stressed ecosystems, and economic inequality, said the study.
“Impacts within and across regions will not be distributed equally. People who are already vulnerable, including lower-income and other marginalized communities, have lower capacity to prepare for and cope with extreme weather and climate-related events and are expected to experience greater impacts.”
It is people that are most affected by climate change—global warming in particular that can result in massive population shifts away from rising waters, drought-affected areas with lack of water and the increased danger of wildfires—and so its effect on communities leads off the study results, especially in the western states with their prolonged droughts.

“Climate change has led to an increase in the area burned by wildfire in the western United States,” said an Atlantic Monthly summary of the report. “Analyses estimate that the area burned by wildfire from 1984 to 2015 was twice what would have burned had climate change not occurred. Furthermore, the area burned from 1916 to 2003 was more closely related to climate factors than to fire suppression, local fire management, or other non-climate factors.”

California in particular has been affected by heat waves this year and the prolonged six-year drought leading to the worst wildfires in California history. The just extinguished Paradise Camp Fire destroyed 18,793 structures and 85 lives lost to date, with several hundred residents still missing.

The last prolonged U.S. dry spell was the 1930’s Dustbowl during the Great Depression. It only compounded the economic damage with the loss of farmland and mass migration of dustbowl families immortalized in John Steinbeck’s Grapes of Wrath.

And economic damage will be horrendous if nothing is done to mitigate the damage from a hotter planet and coastal areas subject to greater flooding.

The report says shoreline counties hold 49.4 million housing units, while homes and businesses worth at least $1.4 trillion sit within about 1/8th mile of the coast. Flooding from rising sea levels and storms is likely to destroy, or make unsuitable for use, billions of dollars of property by the middle of this century, with the Atlantic and Gulf coasts facing greater-than-average risk compared to other regions of the country …

Damage could be as much as $3.6 trillion in properties and value loss of no mitigation measures are taken, but $820 billion “where cost-effective adaptation measures are implemented.”

Climate change is becoming a topic too hot to ignore; even by the science-deniers who prefer to protect their pocketbooks rather than America’s communities and country.

Harlan Green © 2018

Tuesday, December 4, 2018

Credit Alert—Interest Rates About to Invert

The Mortgage Corner

The spread between the 2-year note and the 10-year narrowed 4 basis points to 0.16 percentage point on Monday, its flattest levels since July 2007, according to MarketWatch. The 10-year Treasury yield dropped back below 3 percent, to 2.93 percent for the first time in one year, lowering mortgage rates as well.

This is unheard of in a fully employed economy currently growing at 3 percent.  Longer term rates should be rising, if there was a rising demand for longer term credit transactions, such a mortgages. So it’s a danger signal that all may not be well in the financial markets. There is the perception, at least, that worldwide growth is slowing. The stock market has become increasingly jittery with huge moves daily, trade wars are in full bloom, and Russia (Ukraine) and North Korea (new missile sites) are acting up again.

Hence investors would rather hold US bonds than stocks at the moment.

A major reason for slower worldwide growth could also be the shrinking volume of US dollars in circulation. The Federal Reserve has been selling its $4 trillion hoard of securities back into the private sector that was part of its Quantitative Easing program, thus reducing the amount of US dollars in circulation. This is while it is still the world’s reserve currency that is used in a majority of cross-border transactions.

The current Federal Reserve is another culprit for the inverted curve because it is pushing short term rates higher than is necessary. Its benchmark overnight rate has risen to 2.25 percent, its eighth raise since 2015, and now 2 percent above its post-recession lows, thus increasing the cost of consumer borrowing. Yet inflation is barely rising, which should be a reason not to raise rates, since it is another indication that a majority of consumers aren’t flush with cash. Not when the median income of households has barely budged since the 1980s, after inflation.

There is just not enough demand for goods and services, in other words, which is why inflation is tame. Then what’s causing the economic growth? Corporate profits are at record levels, and automation is speeding up labor productivity. So more is produced, but the income stream doesn’t trickle down to the majority of consumers in what has become a lower-paying service economy of mainly warehouse, restaurant (part of leisure and hospitality sector), healthcare, and retail workers that don’t earn enough money to warrant the Fed’s push for higher short term rates in anticipation that inflation may someday loom on the horizon.

But inflation ain’t happening, and doesn’t look like it will happen soon, unless what trickles down becomes a real income stream for the middle and lower income earners. There has to be greater access to jobs with fair pay, decent shelter, effective schools, and reliable health care, for starters.

Harlan Green © 2018

Follow Harlan Green on Twitter:

Monday, December 3, 2018

Q3 Economic Growth Still Strong

Financial FAQs

Q3 real GDP growth was up 3.5 percent, according to the U.S. government Bureau of Economic Analysis. “With this second estimate for the third quarter, the general picture of economic growth remains the same; upward revisions to nonresidential fixed investment and private inventory investment were offset by downward revisions to personal consumption expenditures (PCE) and state and local government spending,” said the BEA.

Consumer spending is up 3.6 percent, and there is virtually no inflation. Prices are rising 1.7 percent annually per the GDP price deflator that measures the prices of all final goods and services produced domestically.


Soaring corporate profits weren’t a big help to growth, however, as most of the profits are being spent on stock buybacks, though there was a slight increase of capital expenditures. Investment in equipment climbed 3.5 percent vs. virtually no increase in the preliminary estimate.

And spending on structures such as office buildings and drilling rigs fell 1.7 percent instead of -8 percent in the first estimate. Profits were up 19.4 percent after taxes, and tax payments fell 32.9 percent from last year. Corporates profits are therefore up 10.3 percent in a year, the best showing since 2012.

We also now have the Fourth National Climate Assessment, which is much more accurate than the previous reports from 13 federal agencies in pinning down the damage to economic growth. If nothing is done to mitigate its effects on coastal cities’ flooding from rising sea levels, increasing wildfires in drought-stricken regions, and the increasing frequency and ferocity of hurricanes and tornadoes, economic growth will suffer substantially.
“In the absence of significant global mitigation action and regional adaptation efforts, rising temperatures, sea level rise, and changes in extreme events are expected to increasingly disrupt and damage critical infrastructure and property, labor productivity, and the vitality of our communities.”
Need we say more about ignoring physical reality in all its forms? Profits must be invested where they will do the most good. If corporations won’t heed the looming threats to not only the environment but livelihoods as well, then government will find a more beneficial use for the $trillions being hoarded in the private sector.

Harlan Green © 2018

Follow Harlan Green on Twitter:

Thursday, November 29, 2018

Beware the Shrinking US Dollar!

Popular Economics Weekly

Barron’s Magazine reported that the Fed is shrinking credit too quickly, and it will slow not only U.S. economic growth, but growth in the rest of the world as well. Why? Because the U.S. Dollar is the world’s main reserve currency that covers more than 60 percent of world trade.

And since the Fed is taking circulating $$ out of the economy by selling some of those $4 trillion in securities it has been holding since Fed Chair Ben Bernanke’s term--$50 billion per month—it is reducing the amount of dollars in circulation, leaving fewer dollars to pay for transactions via the world’s banks and clearing houses.

Over the four-week period from October 3 through October 31, reports Wolf Street, the Federal Reserve shed $35 billion in assets, according to the Fed’s weekly balance sheet released last Thursday afternoon. This brought the balance sheet to $4,140 billion, the lowest since February 12, 2014. Since October 2017, when the Fed began its QE unwind, or “balance sheet normalization,” it has now shed $321 billion:

And that could mean that China’s Yuan (Renminbi) and the euro would begin to replace it as reserve currencies, meaning that fewer transactions would flow through US banks and economy. This also means the US then has less control over trade rules, and yes, sanctions it wants to impose on other countries, like Iran. This is because other countries don’t like economic bullying that isn’t in their best interests, and will seek to use other currencies, such as the euro in place of the dollar.

The dollar leads all other currencies in supplying the functions of money for international transactions. It is still the most important unit of account (or unit of invoicing) for international trade. It is the main medium of exchange for settling international transactions. It is also the principal store of value for the world’s central banks, said a recent Bank of England Quarterly Bulletin.

But what can happen next, as worldwide growth slows, which is sure to happen as dollar reserves and credit shrink?? Trump’s trade war is happening at a very bad time. Economist and Project Syndicate columnist Jeffery Sachs has outlined the possibilities of trade policies that harm, rather than help economic growth.
“The most consequential and ill-conceived of Trump’s international economic policies are the growing trade war with China and the re-imposition of sanctions vis-à-vis Iran. The trade war is a ham-fisted and nearly incoherent attempt by the Trump administration to stall China’s economic ascent by trying to stifle the country’s exports and access to Western technology. But while U.S. tariffs and non-tariff trade barriers may dent China’s growth in the short term, they will not decisively change its long-term upward trajectory.
“More likely, they will bolster China’s determination to escape from its continued partial dependency on U.S. finances and trade, and lead the Chinese authorities to double down on a military build-up, heavy investments in cutting-edge technologies, and the creation of a yuan-based global payments system as an alternative to the dollar system.”
This is hardly making US safer, in a world that has outgrown dependence on US economic and geopolitical power. The US currently produces around 22 percent of world output measured at market prices, and around 15 percent in purchasing-power-parity terms (i.e., actual volume). Yet the dollar accounts for half or more of cross-border invoicing, reserves, settlements, liquidity, and funding.

We could be punching above our weight, as the saying goes, if we continue to bully our economic allies, as well as our adversaries. There are now other Heavyweights in the ring.  

Harlan Green © 2018

Follow Harlan Green on Twitter:

Wednesday, November 21, 2018

Home Sales Rise for the Holidays

The Mortgage Corner

Existing-home sales increased in October after six straight months of decreases, according to the National Association of Realtors. Three of four major U.S. regions saw gains in sales activity last month.
Lawrence Yun, NAR’s chief economist, says increasing housing inventory has brought more buyers to the market. “After six consecutive months of decline, buyers are finally stepping back into the housing market,” he said. “Gains in the Northeast, South and West – a reversal from last month’s steep decline or plateau in all regions – helped overall sales activity rise for the first time since March 2018.”
It’s really been almost a year (November 2017) since sales last peaked. And that was when interest rates had dipped to 4.0 percent for 30-year conforming fixed rates. So it is further evidence that sales are interest-rate sensitive, and homebuyers will wait for a dip in mortgage rates.

Today’s benchmark 10-year T Bond has fallen back to 3.06 percent, for instance, and the 30-year conforming fixed rate to 4.375 percent for those with the best credit scores.

It’s another manifestation of the flight to quality from a very unstable stock market worried about trade wars and outright wars, as the Trump administration stirs up the domestic and geopolitical temperatures again. Unilateral withdrawals from trade and Intermediate Nuclear Missile treaties do not hearten confidence this administration is interested in keeping the peace.
“Total existing-home sales,, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, increased 1.4 percent from September to a seasonally adjusted rate of 5.22 million in October. Sales are now down 5.1 percent from a year ago (5.5 million in October 2017), said the NAR.
This may be due to increased inventories of homes for sale, as Yun said. Buying has slowed, but new-home building has increased. Total housing inventory at the end of October decreased from 1.88 million in September to 1.85 million existing homes available for sale, but that represents an increase from 1.80 million a year ago. Unsold inventory is at a 4.3-month supply at the current sales pace, down from 4.4 last month and up from 3.9 months a year ago.

Meanwhile nationwide housing starts rose 13.7 percent in October to a seasonally adjusted annual rate of 1.29 million units after a slight upward revision to the September reading, according to newly released data from the U.S. Department of Housing and Urban Development and the Commerce Department. This is the highest housing production reading since October 2016, when total starts hit a post-recession high of 1.33 million.

“We are seeing solid, steady production growth that is consistent with the National Association of Homebuilders forecast for continued strengthening of the single-family sector,” said NAHB Chief Economist Robert Dietz. “As the job market and overall economy continue to firm, we should see demand for housing increase as we head into 2018.”

Single-family production rose 5.3 percent in October to a seasonally adjusted annual rate of 877,000. Year-to-date, single-family starts are 8.4 percent above their level over the same period last year. Multifamily starts jumped 36.8 percent to 413,000 units after a weak September report.

Hurricane Michael hit Florida and Georgia in October though existing-home sales in the South nevertheless managed a 1.9 percent monthly rise. Sales in the West were strongest at plus 2.8 percent with the Northeast at plus 1.5 percent but the Midwest at minus 0.8 percent.
“(Existing-home) Sales may have gotten a boost from discounting as the median price fell 0.6 percent to $255,400, said Econoday. “Year-on-year, the median is up 3.8 percent which is sizably above the decline in sales which points to further discounting ahead.”
More price discounting and lower (not higher) interest rates and inflation may lie ahead, as real estate becomes the more dependable asset in such times of uncertainty.

Harlan Green © 2018

Follow Harlan Green on Twitter:

Tuesday, November 20, 2018

Retail Sales Surge While Consumers Pay Down Debt

Popular Economics Weekly

U.S. retail sales rebounded sharply in October as purchases of motor vehicles and building materials surged, likely driven by rebuilding efforts in areas devastated by Hurricane Florence.

CBS News reports an economic consulting firm says Hurricane Florence may result in between $17 billion and $22 billion in lost economic output and property damage. That would put Florence in the Top 10 of costliest hurricanes to hit the U.S.

The Commerce Department said last Thursday retail sales increased 0.8 percent as households also bought more electronics and appliances. September sales were revised down, sales slipping 0.1 percent instead of nudging up 0.1 percent as previously reported; the month Hurricane Florence made landfall.

Autos were very strong in October, rising 1.1 percent following several months of weakness. Building materials were up nearly as much as autos, up 1.0 percent in what is a good indication for residential investment, said Econoday. Gasoline sales jumped 3.5 percent in the month though this reading for November due very likely fluctuating oil prices, which have been declining of late.

But consumers are spending less overall, as consumer credit slowed more than expected to just $10.9 billion in September, below Econoday's consensus range and less than half of the upwardly revised $22.9 billion August increase. 

Growth slowed in nonrevolving credit, which rose $11.2 billion in September versus $18.3 billion previously, while growth in revolving credit stalled completely and posted a marginal decline of $0.3 billion. Gains in nonrevolving credit reflect vehicle financing and student loans while gains in revolving credit reflect credit-card debt. 

Consumers are paying down their overall debt, in other words, and household net worth is now higher than before the Great Recession, as shown in the above graph. “Household net worth just hit $107 trillion and in relative terms it is at an all-time high of 5.23x nominal GDP. What is significant about this is it is coming during a cycle that has been characterized by household de-leveraging,” said economists from RBC Capital Markets in a MarketWatch interview.
“It took bubbles of epic proportions in the past to boost net worth/GDP significantly (tech, housing). This time around we have a household balance sheet where liabilities relative to net worth are sitting at a 33-year low. Pristine balance sheets coupled with significant momentum from tight labor markets (firming wage growth) and tax reform (firming after-tax income) puts the consumer in a position to continue carrying this cycle for a while,” said RBC.
So how long does the second-longest business cycle, now in its 10th year, last? That’s the question on everyone’s mind. The 10-yr Treasury bond yield just plunged to 3.05 percent, flattening the so-called yield curve once again.

So if the Fed keeps raising short term rates as promised, it could seriously compromise growth next year by restricting credit and consumer spending that makes up two-thirds of economic activity.

Harlan Green © 2018

Follow Harlan Green on Twitter:

Thursday, November 15, 2018

Are Higher Interest Rates Ahead?

Popular Economics Weekly

The benchmark 10-year Treasury Bond Yield that determines mortgage and other long term rates ended at 3.13 percent today from 3.11 percent last week with the continued stock market selloff. It was as high as 3.22 percent at times. The Fed is on track to raise short term interest rates another one-quarter percent in December, which will boost the Prime Rate used for credit card and installment debts to 5.50 percent. What does that mean for continued job and economic growth?

The jury is out on the answer, but market interest rates are barely moving. Consumer confidence is booming, but stocks are fluctuating madly because investors are fretting over what happens next year, which is what investors always attempt to predict—i.e., how much to discount future corporate earnings.

A majority of S&P 500 companies reported higher earnings than predicted in Q3, so there should be a minimal discount. And corporations are using most of their extra profits from the December tax cut to buy back stock. But that is a one-time booster shot that investors worry will soon end the stimulus.

If interest rates continue to rise, it will cut into consumer spending, while bond traders worry about incoming inflation. But the Producer Price Index and Consumer Price Index show inflation remaining below 3 percent—hardly a level that could diminish asset valuations. Both indexes continue to hover around 2.5 percent before seasonal adjustment and inflation are factored in.


The U.S. economy isn’t overheating, in other words. The US Bureau of Economic Analysis reported that the Personal Consumption Expenditure Index of inflation has been basically flat for months; at 2.0 percent, right on the Fed’s inflation target. Robust growth with little inflation is the Goldilocks economy we all yearn for, and the stock market should be applauding, not fearing, as I’ve been saying.
Consumers’ holiday spirits are also cheery, with the U. of Michigan sentiment survey close to its 12-month high. “Inflation expectations are mixed with the year-ahead reading down 1 tenth to 2.8 percent, said Econoday, “but the 5-year outlook up 2 tenths to 2.6 percent. These levels have been steady all year and, for the Federal Reserve, confirm that inflation expectations remain fully anchored.”
What about jobs? The economy looks to be fully employed for another year, at least. The Labor Department’s most recent JOLTS report indicates the gap between openings and hires, which had been widening in previous months and reached a record high of 1.386 million in August, shrank in September—to a still wide 1.265 million. 

That means 1.265 million jobs lack applicants, which could put a brake on future growth. Employers aren’t finding enough qualified workers to expand production, but wages are finally rising above inflation and consumers are spending more as a result.

What’s not to like about this economy? Even the National Federation of Independent Businesses (NFIB); made up mainly of small business owners that are the creators of most new jobs; reported record-high optimism in its October survey.
“Small business optimism continued its two-year streak of record highs, according to the NFIB Small Business Optimism Index October reading of 107.4,” per its press release. “Overall, small businesses continue to support the three percent-plus growth of the economy and add significant numbers of new workers to the employment pool. Owners believe the current period is a good time to expand substantially, are planning to invest in more inventory, and are reporting high sales figures.”
It seems U.S. consumers aren’t yet reacting to the higher tariffs on imported wash machines and other appliances hit by rising aluminum and steel prices. But higher vehicle prices are sure to follow. Total vehicle sales are booming at the moment, topping 18 million units in October, according to the St. Louis Fed.

What can go wrong, you ask??

Harlan Green © 2018

Follow Harlan Green on Twitter:

Wednesday, November 7, 2018

What Will 1% Do with Demo's Blue Wave?

The Mortgage Corner 

Now that the Democrats will be taking back the US House of Representatives in January, can they enact programs that improve the record income inequality in America? American citizens have the least equal incomes in the developed world, as the EPI graph shows. And that has been a major reason for the sluggish recovery from the Great Recession, when 25 percent of Americans still live below the poverty line for a family of four, incredible as that may seem.

The Economic Policy Institute, a labor think-tank reports newly available wage data for 2017 show that annual wages grew far faster for the top 1.0 percent (3.7 percent) than for the bottom 90 percent (up only 1.0 percent). The top 0.1 percent saw the fastest growth, up 8.0 percent—far faster than any other wage group.

This fast wage growth for the top 0.1 percent reflects the sharp 17.6 percent spike upwards in the compensation of the CEOs of large firms, thanks to the massive stock buyback programs.

There is much evidence that the Republicans’ December 2017 tax cuts are largely responsible for the surge in buybacks. That has been little noticed because of the initial 3.5 percent GDP growth estimate for Q3, when consumer spending shot up 4 percent, and inventories were replenished that boosted growth.

Apple, for instance, in May announced a $100 billion share repurchase program and so far in 2018 it's tripled its share repurchases over the first half of last year. S&P 500 companies are on track to return a record $1 trillion (via buybacks and dividends) to shareholders.

Cisco Systems said earlier it would bring back to the United States $67 billion of overseas cash in response to the tax package, using $25 billion to finance additional share repurchases. Alphabet, the parent company of Google, authorized up to $8.6 billion in stock purchases. PepsiCo announced a fresh $15 billion in planned buybacks. Chip gear maker Applied Materials disclosed plans for a $6 billion program to buy shares. And late last month, home improvement retailer Lowe’s unveiled plans for $5 billion in purchases.

Nancy Pelosi, who will be returning as the House Majority Leader, has said one of the Democrat’s priorities is a new infrastructure bill that would require $1 trillion of federal spending. Where would that money come from with a projected federal deficit of $1 trillion in coming years due to reduced tax revenues from the Republican tax cuts?

Another Democratic House leader has said they will want to boost the nominal corporate tax cut from its current 21 percent rate. In fact, the actual tax rate is far below that for most major corporations, because of the various loopholes and tax shelters available to corporations, including having headquarters in low taxation countries, such as Ireland.

Josh Bivens, the EPI research director, estimated that “the effective rate will all but surely dip below 15 percent and get close to 10 percent.” An analysis from the University of Pennsylvania’s Wharton School Budget Model, the average effective tax rate for corporations will be about 9 percent in 2018 but go up to 18 percent by 2027, thanks to some of the provisions that will expire over the next 10 years.

There are in fact many other ways to divert federal funds from overfunded programs, such as reducing the defense budget. Estimated U.S. military spending is $716 billion, according to the Washington Post, now 17 percent of the $4 trillion federal budget. That's part of the spending bill signed by President Trump on August 13, 2018. It covers the period October 1, 2018 through September 30, 2019. Military spending is the second largest item in the federal budget after Social Security.  The United States spends more on defense than the next nine countries combined

More important was the 3.1 percent rise in wages in the Q3 GDP report that may mitigate the record income inequality, as do the various minimum wage boosts is some cities and states. But the overall picture remains bleak, as the EPI graph shows, unless other labor friendly legislation is enacted to strengthen, for instance, collective bargaining rights of unions in right-to-work states enacted by Republican legislatures since 2010 in particular.

Harlan Green © 2018

Follow Harlan Green on Twitter:

Monday, November 5, 2018

On Tyranny

Answering The Kennedys Call

Whether or not President Donald Trump ever owned a copy of Hitler’s Mein Kampf, stories abound of its existence with followers such as Steve Bannon, who was reported to have gifted him a signed copy when part of Trump’s campaign.

What is most disturbing to Timothy Snyder, Housum Professor of History at Yale University and a scholar of the Holocaust, is that so many of Donald Trump’s supporters espouse Hitler’s program of white (instead of Aryan) nationalism, which could lead to a similar outcome if such a demagogue ever rose to power in the United States of America.

You say that’s not possible with our 229-year old democratic institutions enshrined in the U.S. Constitution?
Professor Snyder writes in his Prologue: “History does not repeat, but it instructs…Americans today are no wiser than the Europeans who saw democracy yield to fascism, Nazism, or communism in the twentieth century. Our one advantage is that we might learn from their experience.”
And he has listed 20 signs that help us to learn how to remain free from past tyrannies:
  1. 1. Do not obey in advance.
  2. 2. Defend institutions.
  3. 3. Beware the one-party state.
  4. 4. Take responsibility for thr face of the world.
  5. 5. Remember professional ethics.
  6. 6. Be wary of paramilitaries.
  7. 7. Be reflective if you must be armed.
  8. 8. Stand out.
  9. 9. Be kind to your language.
  10. 10. Believe in truth.
  11. 11. Investigate.
  12. 12. Make eye contact and small talk
  13. 13. Practice corporeal politics.
  14. 14. Establish a private life.
  15. 15. Contribute to good causes.
  16. 16. Learn from peers in other countries.
  17. 17. Listen for dangerous words.
  18. 18. Be calm when the unthinkable arrives.
  19. 19. Be a patriot.
  20. 20. Be as courageous as you can.
Many of these maxims may seem self-evident, but are necessary for a participatory democracy to exist. “Believe in truth” may seem to be self-evident, but only works if one is willing to “Investigate” untruths, or truthiness, or alternative facts; terms coined by Trump administration officials to deny reality—whether it be the reality of damage done by Republican tax cuts, trade wars, and immigrant caravans that are made up mostly of women and children fleeing terror in their own countries, rather than criminals.

“To abandon facts is to abandon freedom,” says Professor Snyder. “If nothing is true then no one can criticize power.”

“Be kind to your language” is a corollary maxim, which means think for yourself and not be bound up in mass media language and thoughts. Read books, rather than be mesmerized by the Internet. Radio was the medium Hitler’s propaganda chief Goebbels used to hypnotize the German people with Hitler’s speeches.

“Listen for dangerous words” is another corollary. Words have meanings. How many times have we heard President Trump use the words ‘extremists’ and ‘terrorists’ to mischaracterize Muslims and Hispanic immigrants?

They give license to President Trump to invoke emergency declarations, which justified his use of emergency powers to slap aluminum and steel tariffs on our allies, while withdrawing from existing trade agreements that in fact protected us from unfair competition, and call up U.S. Troops to supposedly defend our southern border from the approaching immigrant caravans.
“Modern tyranny is terror management,” says Professor Snyder. “Be calm when the unthinkable arrives…The sudden disaster that requires the end of checks and balances, the dissolution opposition parties, the suspension of expression.”
Nothing is more dangerous to Democracy than an immoral and lawless leader who cares only to enhance his own power and wealth, or an adult citizen that doesn’t vote.

Harlan Green © 2018

Follow Harlan Green on Twitter:

Friday, November 2, 2018

U.S. Wages At 9-Year High

Popular Economics Weekly

Total nonfarm payroll employment rose by 250,000 in October, and the unemployment rate was unchanged at 3.7 percent, the U.S. Bureau of Labor Statistics reported today. Job gains occurred in health care, in manufacturing, in construction, and in transportation and warehousing—in basically all sectors of the U.S. economy.
“The rapidly growing economy generated a sizzling 250,000 new jobs in October, keeping the unemployment rate at a 48-year low and pushing the increase in worker pay to the highest level in more than nine years,” said MarketWatch’s Jeffery Bartash.
The large increase in worker pay highlighted the unemployment report, as did government reports such as the BLS Job Openings and Labor Turnover Survey (JOLTS) that showed more than 7 million job openings, and a high Quits rate of voluntary separations that usually means workers are finding better jobs.
“The number of job openings reached a series high of 7.1 million on the last business day of August, the U.S. Bureau of Labor Statistics reported in October. Over the month, hires and separations were little changed at 5.8 million and 5.7 million, respectively. Within separations, the quits rate was unchanged at 2.4 percent and the layoffs and discharges rate was little changed at 1.2 percent.”
The 5.8 million hires really highlights the incredible jobs turnover rate each month in the $20.7 trillion U.S. economy. A major component of the unemployment report was the 32,000 new manufacturing jobs created in October that was highlighted in the BEA’s report on new factory orders.

“Up a higher-than-expected 0.7 percent, factory orders in October added to September's very strong gain which is now revised 3 tenths higher to 2.6 percent,” said Econoday. “October's increase for durable goods, also at 0.7 percent, is revised 1 tenth lower from last week's advance report with orders for non-durable goods, which are the fresh data in today's report, up 0.6 percent reflecting gains for petroleum and chemical products.”
Why the lowest unemployment rate in many years? A major reason is the percentage of able-bodied Americans in the labor force from the ages 25 to 54 rose to 82.3 percent in October from 81.8 percent in the prior month. That marks the highest level since April 2010.

How about interest rates? The 10-year Treasury Bond yield rose to 3.15 percent once again, and the Fed is sure to raise their Fed Funds rate another one-quarter percent in December to 2.25 to 2.50 percent, which means the Prime rate will go to 5.50 percent. That hasn’t dented consumer spending yet, but it might in the New Year.

What with the election uncertainty, trade wars, jittery financial markets, and an administration fearful of its own survival, we don’t see how 2019 can be as good.

Harlan Green © 2018

Follow Harlan Green on Twitter:

Tuesday, October 30, 2018

Mr. President, Please Don’t Shoot Anyone!

Financial FAQs

Where is President Obama and other national leaders when we need them? Where is someone to refute the neo-Nazi lies of President Donald Trump, who no longer has to brag that he can shoot someone on Fifth Avenue, because his followers and those who believe his lies of Jewish conspiracies and immigrant invasions are carrying out the mass shootings and violence for him; with the Pittsburgh Tree of Life Synagogue shooter and Florida bomber the latest examples?

Any national leader’s voice will do, as this is happening because Donald Trump has been inciting his followers to avoid impeachment from a Democratic-elected congress in the upcoming November election.

Are there not even voices from his own Republican Party who will stand up to his relentless incitements of age-old fears?

It will take a clarion call from a moral national leader to refute the lies that there is an “invasion” of several thousand Central Americans seeking asylum from their own country’s violence, and who are about to overwhelm 325 million American citizens. There is no invasion of immigrants, as even a Fox News host has said.

The number of mass shootings around the country in 2018 continues to climb.  According to data from the Gun Violence Archive, a total of 293 mass shooting incidents have occurred as of October 27.

Saturday's mass shooting at a synagogue in Pittsburgh, with 'multiple casualties' and multiple officers injured, marks the 294th mass shooting. In 2017, the U.S. saw a total of 346 mass shootings. 

Where are our national leaders, including past presidents, who still believe in the rule of law and want to stop this President’s call to violence, a man who will do and say anything to stay in power?

Harlan Green © 2018

ollow Harlan Green on Twitter:

Monday, October 29, 2018

Government Is the Solution, Part II--Housing For the Homeless

Popular Economic Weekly

I said in an earlier column “that part of the solution to the housing and homeless crisis has to be the responsibility of governments.”

A recent Project Syndicate article by UC Berkeley economist Laura Tyson, and Lenny Mendonca, Chairman of New America, highlighted just how much government support will be needed to take some of the half million homeless off the streets, a number that has grown sharply just since 2017 as housing rents and prices have soared with the economic recovery.
According to the U.S. Department of Housing and Urban Development (HUD), there were roughly 554,000 homeless people living somewhere in the United States on a given night last year. “A total of 193,000 of those people were "unsheltered," meaning that they were living on the streets and had no access to emergency shelters, transitional housing, or Safe Havens. Despite a booming stock market and strong economic growth, a large swathe of America is still struggling to make ends meet.”
And affordability is the real problem. “Of 3,007 counties in the US, a worker earning the federal minimum wage of $7.25 per hour can afford a one-bedroom rental in only 12,” said Project Syndicate. “In San Francisco, where the median house price is over $1.5 million, a single mother earning the minimum wage would have to work 120 hours per week to meet her basic needs. And even outside of high-cost regions, nearly two-thirds of US households lack the savings to cover a $500 shock such as a car repair or health-care expense. For these families, one bad turn can result in homelessness.”

The most common-sense solution would be to build more homes for all socio-economic strata, but surveys have shown that a majority of the home owning public thinks in NIMBY (Not-in-My-Backyard) terms; which means the most affordable housing is being built on least-desirable land usually far from population centers. is one such advocate and clearing house for the building of affordable housing under its Mission Statement: “For the United States to be a prosperous country, it must have strong cities, towns and neighborhoods. Enduring prosperity for our communities cannot be artificially created from the outside but must be built from within, incrementally over time.”

For instance, California would need to build around 180,000 more new housing units each year – about 100,000 more than are currently being built – just to keep up with population growth. Since 2010, eight times as many jobs as housing units have been added in San Francisco, where the average cost of building “affordable apartments” has jumped to $425,000. King County, Washington, which includes Seattle, estimates that it would need 14,000 more units to house its homeless population.

Not providing lodgings and services for the homeless can be even more expensive. There are many studies that show how costly it can be to leave the homeless on America’s.

Many local and state governments have developed what have been called ‘Housing First’ programs to help subsidize the 30 percent of homeless with mental illnesses in particular. Chronically homeless people are regular visitors to emergency rooms, and each visit results in a hefty bill. They also frequently use mental health and addiction treatment services and tend to rack up arrests, leading to costly jail terms.
“Housing First is a homeless assistance approach that prioritizes providing permanent housing to people experiencing homelessness, thus ending their homelessness and serving as a platform from which they can pursue personal goals and improve their quality of life,” said its program statement. “This approach is guided by the belief that people need basic necessities like food and a place to live before attending to anything less critical, such as getting a job, budgeting properly, or attending to substance use issues.”
Philip Mangano, the former homeless policy czar under President George W. Bush was an early government official that had the foresight to expand housing-first programs -- with federal dollars behind them -- into cities around the country.

Using data from the 65 cities -- of all different sizes and demographics -- the cost of keeping people on the street added up to between $35,000 and $150,000 per person per year, said Mangano.
Conversely, after the housing-first programs had been established, Mangano said he looked at the cost of keeping formerly homeless people housed. That range: $13,000 to $25,000 per person per year.

We must find a way to care for the homeless and those rendered hopeless by the Great Recession, loss of good-paying jobs and record income inequality that has now lasted decades. Or, the richest country on earth risks becoming the poorest provider of care for our citizens, the hallmark of a healthy democracy.

Harlan Green © 2018

Follow Harlan Green on Twitter: